WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.

The principle of Commonwealth ownership of land
in the Australian Capital Territory was given expression in s125 of
the Constitution which states in part that:

The seat of Government of the
Commonwealth shall be determined by Parliament and shall be within
territory which shall be granted to or acquired by the Commonwealth
and shall be vested in and belonging to the Commonwealth.

Public leasehold of land in the ACT was provided
by The Seat of Government (Administration) Act 1910 which
states in s9 that 'no Crown lands in the territory shall be sold or
disposed of for any estate of freehold'.

In 1989 the ACT became self-governing. The
Australian Capital Territory (Planning and Land Management) Act
1988 provides for land within the ACT to be 'national' land or
'territory' land. Section 29 states that the ACT Executive is
responsible for the management of territory land on behalf of the
Commonwealth. Section 29(3) provides that the term of an estate in
territory land granted on and after self-government (11 May 1989)
'shall not exceed 99 years or such longer period as is prescribed,
but the estate may be renewed'.

The original reasons for the adoption of a
public leasehold system for the ACT included:

defraying the expenses of establishing the National Capital by
allowing unearned increments in land value to be retained by the
Commonwealth Government;

avoiding speculation in undeveloped land; and

ensuring orderly planned development through lease purpose
clauses.

At the time of Federation, in debates on the
acquisition of land for the Seat of Government, many members of
Parliament were convinced that the only really economical method of
managing land in the Territory was to alienate it under long-term
leases, with periodical reappraisals of rent. Speaking in the House
of Representatives on 22 September 1903, Sir Edmund Barton summed
up what was the prevailing view when he said:

Within the area that is chosen, the
Commonwealth should be the landlord or the proprietor of every
square inch of private land...there will be a progressive
settlement which will tend to swell the revenue derivable from the
land within the federal area, and thus provide a fund, not only for
meeting interest, but also the extinction of debt...a system of
leases with periodical reappraisement, will be about the best
manner in which we can set about the meeting of any expense which
we may incur in connection with this project.(1)

There was also concern in the minds of the
people framing the legislation to establish the new National
Capital about the possibility of land speculation that might
eventuate. Land scandals associated with the grant of lands and
speculative development were especially common in Sydney and
Melbourne in the 19th century and led to heightened concern that
after the long debate about the siting of the National Capital, it
would give rise to unseemly land speculation.(2)

In addition, the leasing of land was seen as a
way of ensuring orderly development by placing conditions on the
granting of leases. By leasing the land the Commonwealth Government
could provide sites at low capital cost for housing and for public
and community services, as well as for commercial activities.
Leasehold provided a means of planning the city so that it
developed in a predictable fashion.(3)

There are four categories of lease granted in
the ACT under the Land (Planning and Environment) Act (ACT)
1991 [the Land Act (ACT)]:

Residential leases can be for up to 99 years,
and most are for that period. These may be automatically renewed
for a further 99 years without charge. The only exception to this
right is if the ACT or Commonwealth Government require the land for
a public purpose [s171of the Land Act (ACT)]:

Commercial, industrial and community leases
may also be for up to 99 years. Renewals of these leases are
governed by s172 of the Land Act (ACT). As with
residential leases, an application for renewal may be made in the
last 30 years of a lease. If the land is not required by the ACT or
Commonwealth Government for a public purpose and if there is no
change to the purpose of the lease, then it may be renewed on
payment of a 'determined fee'. On 8 January 1998 the Chief Minister
of the ACT, Kate Carnell, announced that commercial leases which
were granted for less than 99 years could be converted to 99 year
leases on the payment of $200, provided that the lease purpose
remained the same.(4)

Rural leases are usually granted for up to 50
years. Unlike residential or non-residential leases the Land
Act (ACT) does not provide any security of tenure by way of
lease renewal for rural leases. The reason for this relates to the
gradual resumption of rural lands for residential development as
more land was required for the building of Canberra.

Special leases may be granted for a charge
that is less than the market value of the lease where the ACT
administration is satisfied that it is desirable and in the public
interest to do so in order to facilitate economic development or
the development of business in the ACT [s164 of the Land Act
(ACT)]. Sites provided to each church or denomination
and to the Australian National University have been granted as
special leases.

Land rents were charged on residential and
non-residential leases until 1970 when they were abolished and
municipal rates increased. From January 1971 a 'betterment levy'
has been charged when a lessee is granted a change in the lease
purpose.

Usually (but not always) freehold permits the
owner to use the land for a particular purpose, allowed by
government and planning laws, for an indefinite period. There is no
right to change the use to a different use, unless the latter is a
permissible one under land use controls and permission is granted
after an appropriate assessment. In addition, an owner's lawful use
of land is constrained by a large number of diverse regulations
relating to building, health, and environmental concerns. A land
owner is also required to pay taxes on land, eg. rates and land
tax. For land held in fee simple (that is, an estate in land which
is the most absolute in respect to the rights it confers), minerals
are usually reserved for the Crown.

The ACT leasehold system has evolved since the
1920s to share many of the attributes of freehold. For example,
leases may be transferred with the agreement of the lessor (the ACT
administration). Transfer may be by sale or inheritance. As in a
freehold system, the administration continues to make rules about
the use of its land, controls over building etc, and levying of
rates and taxes. The administration retains the right, as with
freehold tenure, to compulsorily acquire the lease upon payment of
compensation.

One of the principal differences between private
freehold and public leasehold is that the lessor is also the
government and therefore owns all of the use rights in land. By
granting a lease it permits the lessee to use the land for the use
or uses specified in the lease but no more. The lessor retains the
right to use the land for any other purpose. Normally leases are
granted for a terminable period. Until 1 January 1971, the lessor
also had the right to receive rent. In this way increases in value
in land accrued, to some extent, to the lessor.(5)

In summary, the characteristics of the ACT
leasehold system which are distinct from freehold are:

a lease is for a purpose which is specified in the lease
purpose clause;

a lease is for a specified period of time, usually 99
years;

a lease includes covenants and conditions with which the lessee
is required to comply; and

The leasehold system in the ACT has been
reviewed thirteen times in the past 25 years. A list of the
thirteen reports is in the Appendix. A number of these reports
discussed the alternative of perpetual leasehold.

The Land Tenures Inquiry (1976)
favoured perpetual leasehold for home owners because of their
concern for security of tenure. However, the Inquiry did not
recommend that commercial uses should have leases of indefinite
duration. It recommended that commercial leases should be for fixed
terms.(6)

The White Report (1983)
rejected perpetual leasehold as unnecessary and unjustified. It saw
the notion as inconsistent with the Commonwealth ownership of land.
Perpetual leasehold had the capacity to weaken the leasehold system
and the effectiveness of the lease purpose clause as a planning
tool.(7)

The Langmore Report (1988) also
rejected leases in perpetuity as being fraught with contractual
difficulties and weakening the Government's control over the use of
land.(8)

The Stein Report (1995)
similarly rejected conversion to a system of leases in perpetuity
(or freehold) because of the primacy of lease purpose clauses in
controlling planning and development in the ACT. Justice Stein of
the NSW Land and Environment Court also argued that conversion to
freehold or perpetual leases would affect the ACT Government's
ability to extract a charge for development rights ('betterment')
on ACT land. He said that:

Since the Government's residual
interest in the land is diminished (by perpetual leasehold), it
will be in a weaker position to exact a betterment charge. The
failure of the NSW land development legislation in the early 1970s
was largely a product of the opposition of private landholders to
accepting a development rights levy within a freehold tenure
system. This experience is indicative of the lessening of political
control which likely would follow conversion to a system of
perpetual leasehold in the ACT.(9)

The Australian public has a general preference,
understanding and appreciation of freehold tenure. Freehold tenure
is predominant throughout Australia, so anything less than
perpetual leasehold would 'severely penalise Canberra
residents'.(10) A term leasehold subject to renewal, and possibly
re-appraisal, is 'an extreme restriction on natural rights of
property ownership and family inheritance'.(11) This is also one of
the arguments in the minority report of the Joint Sub-Committee on
the Canberra Leasehold System (The Langmore Report) where four
Coalition members of the sub-committee argued in November 1988
that:

Freehold or perpetual leasehold is
consistent with the very Australian aspiration to enable each
Australian to own a little piece of Australia. There is no reason
why residents of the ACT should be denied that
aspiration.(12)

Control of planning and development

The main feature of Canberra's leasehold system
is the control over the land use particularly by individual purpose
clauses and building requirements which facilitates planning.
However, planning in each of Australia's six States is easily
facilitated by the statutory planning systems of State and Local
governments. Canberra could adopt the familiar statutory planning
systems of the rest of Australia. The residual role of the ACT and
Commonwealth Governments would ensure that local as well as
national interests are taken fully into account.(13)

Natural progression

Perpetual leasehold would be a natural
progression from the many changes that have occurred to ACT
leasehold, including:

the method of sale of land leases which has changed gradually
from a rental bid to an outright cash premium;

tenant rights in the improvements were introduced in 1938 to
give the lessee some long term equity in the lease;

land rent and consequent re-appraisals were abolished from 1
January 1971.

These changes are largely irrevocable, and the
logical next step would be perpetual leasehold.(14)

Deterrent to business in Canberra

Proponents of a change to 999 year leases claim
that they would provide more certainty and security for investors
in the ACT. In his Second Reading Speech, the Minister for Regional
Development, Territories and Local Government, Hon Alex Somylay,
quoted the ACT Chief Minister, Mrs Kate Carnell in describing the
99 year limit as 'antiquated and unduly restrictive'. The ACT
Minister for Land, Planning and the Environment, Mr Gary Humphries,
is quoted as telling a meeting of the ACT Property Council
that:

I have been told constantly of
overseas investment opportunities which evaporated when the
investors found they were dealing with leasehold - and a leasehold
system which is not quite like any other...one that does not
provide certainty of lease renewal.(15)

Simplification of administration

The limited leasehold system requires more
administration than is necessary. Perpetual leasehold should
involve less administrative perplexities and workload. It is much
more readily understood by the public.(16)

One important aspect of any change to leases
would be the effect on the Government's ability to enforce
compliance with lease terms. Its interest in land would obviously
be less than in the case of a fixed term lease. In terms of
enforcement, it would be in little different position than a local
government authority in the States seeking to enforce development
approvals and statutory planning schemes. Professor Max Neutze has
argued that many of the critics of leasehold assess it in
comparison with an idealised view of what happens under freehold.
'Because the land is owned by the community, leasehold has the
potential to more adequately protect the community interest in the
way a city develops.'(17)

Loss of revenue

The beneficial ownership of land is almost the
only 'resource' of the ACT government from which it can gain
revenue, and increasingly, as the supply of suitable rural land for
conversion to urban uses runs out, the source of revenue will be
from changes to use. Justice Stein argued in his 1995 report that,
if that source is given away, then it is unlikely that the
Commonwealth Grants Commission would recommend that the ACT be
compensated. He argued that:

In negotiating self government for
the ACT, the Commonwealth was mindful of the fact that the new
government would have limited opportunities to locally raise
revenue. In managing the Territory land on behalf of the
Commonwealth, the ACT was given the income stream from the
administration of leases as a significant source of income...The
Commonwealth could not take lightly a self denying ordinance by the
ACT Government to secure an appropriate return on a national asset
such as Territory land.(18)

In addition, he suggested that the leasehold
system has brought the following financial benefits to Canberra
residents:

lower price of land for housing;

lower cost land for public use;

lower cost land for community use; and

financial return for the government.(19)

ACT is a national heritage

The Langmore Report (1988) stated that 'Canberra
land is a national heritage to be safeguarded and used for the
benefit of the nation and its capital'.(20) Leasehold tenure
ensures that ownership of the land remains in the public domain for
the benefit of all Australians.

ACT residents already have secure tenure

Canberra residents have a secure tenure with
residential leases renewed automatically and without cost.
According to the Stein Report, if renewal of commercial leases was
made virtually automatic, subject to the requirement of s172 to the
Land Act (ACT), and long term rural leases were given the
right of renewal, 'then the vast majority of leaseholders will have
adequate security of tenure'(21).

No evidence that leasehold is a disincentive to
business

The Stein Report said that there is no evidence
that leasehold tenure inhibits investment in the ACT.

Unfortunately no one was able to give
the Board any details of any investment which did not take place in
the Territory as a sole consequence of the leasehold system. In the
result we have been left with a small number of admittedly
anecdotal stories which are impossible to verify, despite a number
of attempts. Those examples able to be scrutinised by the Board
revealed a variety of complex reasons behind a decision not to
invest.(22)

Professor Patrick Troy, head of the Urban
Research Program at the Australian National University, is quoted
as saying that it is 'nonsense' to suggest that the leasehold
system affected investment. 'Hong Kong, Stockholm, Amsterdam and
Singapore were among the "thriving and bubbling" cities which
operated with leasehold systems'.(23) Professor Max Neutze has
written that:

It is true that investors will pay
somewhat less for leasehold than for freehold land because they are
buying lesser rights, but that does not reduce the rate of return
on their investments. The strongest proponents of conversion to
freehold are those who purchased leases and want to be
given the additional rights that attach to freehold
tenure. Once everyone has freehold tenure, the rate of return from
investment in the ACT would be expected to be about the same as
elsewhere in Australia.(24)

Section 164 of the Land Act (ACT)
enables the Government to grant special leases at less than the
market value in order to facilitate economic development or the
development of business in the ACT. The Stein Report recommended
that the ACT Government provide special leases where it is
'satisfied that it is desirable and in the public interest to do
so'.(25)

In the various reports on changes to the ACT
leasehold system, those in favour of abolition of the leasehold
system are presented mainly as developers and as the owners of
leases which had potential for redevelopment. Those in favour of
maintaining the leasehold system are presented as representatives
of residents and community groups. According to Professor Neutze, a
useful way of describing the situation in Canberra is that leases
have been increasingly treated by many lessees and land
administrators as though they were freehold. Some people believe
that this is appropriate and want to legitimise that situation;
others see it as the erosion of the community equity in and control
over land and want to see it reversed.(26)

If this Bill is passed, then it will still be
necessary for the ACT Legislative Assembly to pass its own
complementary legislation changing the current leasehold system.
Prior to the ACT election on 21 February 1998, the Labor Party, the
Greens and the Independent MLA Mr Michael Moore all said that they
would oppose such a change. In the previous Legislative Assembly,
those nine votes would have been sufficient to stop the Assembly
making the change.

The effect of Item 1 is to
enable leases in the ACT to be granted for 999 years and to remove
the provision for prescribing longer periods. Item
2 states that the change from 99 to 999 year leases will
apply to estates granted on or after this Act receives Royal
Assent. Automatic renewal would not be possible under the proposed
legislative change. Business and other lessees wishing to obtain a
lease longer than 99 years would have to surrender their old lease
and apply for a new one under the new limit of 999 years.

ACT Board of Inquiry into the Administration of Leasehold,
Report into the administration of the ACT leasehold,
November 1995 (Chair: P. Stein), Publications and Public
Communication, Canberra, 1995, 20-23.

Commission of Inquiry into Land Tenures, Final report,
February 1976 (Chair: R. Else-Mitchell), AGPS, Canberra, 1976.

Committee of Review of the National Capital Development
Commission, Canberra planning and development: report of the
Committee of review of the role and functions of the NCDC,
July 1983 (Chair: G.M. White), AGPS, Canberra, 1983.

ACT Board of Inquiry into the Administration of Leasehold,
Report into the administration of the ACT leasehold,
November 1995 (Chair: P. Stein), Publications and Public
Communication, Canberra, 1995, 117.

B.V. Raison, 'Proposal for perpetual leasehold in the
Australian Capital Territory', The Valuer, October 1979,
643.

M. Neutze, 'The Stein Report on leasehold administration in the
Australian Capital Territory: some observations on land tenure and
systems in other States', Local Government Law Journal,
1(4), May 1996, 215.

ACT Board of Inquiry into the Administration of Leasehold, op.
cit., 113.

Ibid, 124-125.

Joint Sub-Committee on the Canberra Leasehold System, op. cit.,
8.

ACT Board of Inquiry into the Administration of Leasehold, op.
cit., 116.

Commission of Inquiry into Land Tenures, Final report,
February 1976 (Chair: R. Else-Mitchell), AGPS, Canberra, 1976.

Joint Committee on the Australian Capital Territory,
Planning in the ACT: procedures, processes and community
involvement, March 1979 (Chair: J.W. Knight), AGPS, Canberra,
1979.

Committee of Review of the National Capital Development
Commission, Canberra planning and development: report of the
Committee of review of the role and functions of the NCDC,
July 1983 (Chair: G.M. White), AGPS, Canberra, 1983.

Rosemary Bell
26 February 1998
Bills Digest Service
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